I worked on a game/toy last year named Lineriders. It used Xith3D for rendering and Odejava for the rigid body physics. The promotional description was:

Projected Lineriders cars follow lines that people draw on the surface with pens, speeding up and slowing down according to a visual annotation language. The cars skid and crash and jump over obstacles like hands, bridging the space between the physical and virtual. The game is open ended, nurturing peoples' own creativity and imagination as they strive to create the perfect track.

Unfortunately the setup is rather expensive so you can't try it yourself (unless you attended the RCA interaction design show last year), but I have placed a video and some photos online: http://williamdenniss.com/lineriders/ . We were thinking of creating a budget version that used a web-cam to capture drawn images with the cars displayed only on the screen but unfortunately don't have the time.